1. Salem Industries sells products A, B and C. In 2019 the quantity sold, sales revenue, total variable costs products were:

Fixed costs were $612,000.

Required:

1. Compute Salem’s breakeven sales (units). Prove your answer.
2. Calculate the sales (in units) required to earn a target profit $153,000. Prove your answer.

Calculate the reduction needed in the fixed costs to break even at 5,000 units; in case the selling price increased by 4% and the variable cost decreased by 3% for the three products.        

A company bought a new machine fot $300,000. The new machine generated revenue for $90,000 per year. Operating cost of that machine is $10,000 per year. The machine is depreciated according to 7-years MACRS method. The machine is sold for $80,000 in the middle of 6^th year of service. Determine the after tax net present worth. Assume, the after-tax MARR is 10% and income tax rate is 25% (federal and state combined).

A government annually collects $520 billion in tax revenue and allocates $64 billion to education spending. What percentage of this government's budget is spent on education?

A. 24.50%

B. 12.31%

C. 13.21%

D. 30.13%

Transaction 5: Earning of Service Revenue on Account

Smart Touch performs a service for clients who do not pay immediately. The business receives the clients’ promise to pay $3,000 within one month. This promise is an asset, and Account Receivable, because the agency expects to collect the cash in the future. In accounting, we say that Smart Touch performed this service on account. It is performing the service (doing the work), not collecting the cash, that earns the revenue. As in transaction 4, increasing earnings increases Sheena Bright, Capital. Smart Touch records the earning of $3,000 of revenue on accounts, as follows.

ASSETS                                              LIABILITIES   OWNER’S EQUITY

Essay: Do not add graphing.

1. Explain the concept of profit maximization when the marginal revenue equals marginal cost.

2. Differentiate: Average Fixed Cost, Average Variable Cost, and Average Total Cost.

3. Discuss the relationship between utility and price.

According to the Internal Revenue Service, income tax returns one year averaged $1,332 in refunds for taxpayers. One explanation of this figure is that taxpayers would rather have the government keep back too much money during the year than to owe it money at the end of the year. Suppose the average amount of tax at the end of a year is a refund of $1,332, with a standard deviation of $725. Assume that amounts owed or due on tax returns are normally distributed.

(a) What proportion of tax returns show a refund greater than $1,800?
(b) What proportion of the tax returns show that the taxpayer owes money to the government?
(c) What proportion of the tax returns show a refund between $100 and $720?

We are given the following information about a Company X -

Debt-Value Ratio - 15%

Revenue - $90,000

Cost - $50,0000

Cost of Debt - 5%

Cost of Equity - 25%

Shares Outstanding - 5,000

Corporate Tax - 30%

(a) What is the firm’s value?

(b) What is its stock price?

(c) Company Y is a leveraged buyout firm. It believes that Company X's leverage is too low. It thinks that Company X's firm value can increase with higher debt-to-value ratio and believes Company X's optimal debt-to-value ratio is 15%. Company X's cost of debt at this 15% debt-to-value ratio is 9%. Company Y is considering buying all of Company X's shares and increase Company X's leverage to the optimal 15% level. Proceeds from debt issuance will be given out to equityholderes as special dividend. What is the maximum premium Company Y is willing to pay for Company X's shares?

Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

b. The vertical analysis indicates that the cost of goods sold as a percent of sales   by 8 percentage points, while selling expenses   by 4 percentage points, and administrative expenses   by 1 percentage points. Thus, net income as a percent of sales   by 3 percentage points.

Budget Prices Inc. opened for business on January 01, 2017 and has budgeted sales revenue for the first quarter of 2017 as follows: January $100,000 February $175,000 March $250,000 The company anticipates that approximately 80% of sales each month will be on credit given the nature of the business, with a collection plan as follows:  50% in the month of sale  40% in the month following the sale  10% two months following the sale Required: Prepare a monthly cash collections/receipts budget for the first quarter

Measuring Economic Exposure. Assume you live in the U.S. Using the following cost and revenue information shown for DeKalb, Inc.,

a) determine how the costs, revenue, and net cash flow would be affected by three possible exchange rate scenarios for the New Zealand dollar (NZ$):

            1) NZ$ = $0.55,

            2) NZ$ = $0.60, and

            3) NZ$ = $0.65.

            b) What is your conclusion?

            15 Marks    

Note: PCF_t is the percentage change in inflation-adjusted cash flows measured in the firm's home currency (U.S. dollars) over period t, and e_t is the percentage change in the exchange rate of the foreign currency over period t.   

Forecasted Net Cash Flows: DeKalb Inc.

(in millions of U.S. dollars and New Zealand dollars)

                                                                                                                               New Zealand

                                                                                            U.S. Business               Business

      Sales                                                                                   $800                         NZ$800

      Cost of Materials                                                               500                               100

      Operating Expenses                                                           300                                     0

      Interest Expense                                                                100                                     0

      Cash Flow                                                                       ($100)                         NZ$700